Cabinet warning over bank debt
Source: Shanghai Daily |
June 14, 2010, Monday
|
Print Edition
Print Edition
CHINA'S State Council, the Cabinet, ordered local governments yesterday to better manage investment agencies amid concern that their borrowings, estimated at hundreds of billions of yuan, could cause problems for Chinese banks.
It also directed banks to control lending to these agencies by targeting loans at specific projects and monitoring how the credit is used.
Chinese banks have escaped the mortgage-related turmoil that hit Western financial institutions and triggered the global economic downturn, but analysts warn that a lending boom driven by government stimulus spending could leave lenders with a mountain of bad loans.
In May, the State Council ordered a review of the investment agencies after the World Bank and China's central bank warned about debt levels and said banks could face losses if the agencies cannot repay their debts. Such agencies invested heavily in real estate and infrastructure as part of the stimulus spending.
"There are some problems that have occurred that require a high degree of attention," said a statement posted on the State Council's Website yesterday.
"Mainly, the size of debt-financing of the financing platform companies has swelled rapidly, while their operations are not standardized."
Finance platform companies refers to the investment agencies.
According to earlier reports, local investment agencies owed 6 trillion yuan (US$880 billion) to state banks.
An American researcher, Victor Shih of Northwestern University, estimates total local government borrowing in 2004-09 at 12 trillion yuan, The Associated Press reported.
The State Council statement said some banks and financial organs had poor risk awareness while investment agencies lacked adequate credit management.
Local governments, it said, had also broken rules.
They are not allowed to use state-owned assets or government revenue to offer guarantees, directly or indirectly, for the investment agencies.
It also directed banks to control lending to these agencies by targeting loans at specific projects and monitoring how the credit is used.
Chinese banks have escaped the mortgage-related turmoil that hit Western financial institutions and triggered the global economic downturn, but analysts warn that a lending boom driven by government stimulus spending could leave lenders with a mountain of bad loans.
In May, the State Council ordered a review of the investment agencies after the World Bank and China's central bank warned about debt levels and said banks could face losses if the agencies cannot repay their debts. Such agencies invested heavily in real estate and infrastructure as part of the stimulus spending.
"There are some problems that have occurred that require a high degree of attention," said a statement posted on the State Council's Website yesterday.
"Mainly, the size of debt-financing of the financing platform companies has swelled rapidly, while their operations are not standardized."
Finance platform companies refers to the investment agencies.
According to earlier reports, local investment agencies owed 6 trillion yuan (US$880 billion) to state banks.
An American researcher, Victor Shih of Northwestern University, estimates total local government borrowing in 2004-09 at 12 trillion yuan, The Associated Press reported.
The State Council statement said some banks and financial organs had poor risk awareness while investment agencies lacked adequate credit management.
Local governments, it said, had also broken rules.
They are not allowed to use state-owned assets or government revenue to offer guarantees, directly or indirectly, for the investment agencies.
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